Nonprofits play a crucial role in advocating for social change, raising awareness of important issues, and pushing for policy reforms that align with their missions. However, when it comes to political involvement, nonprofits need to understand the difference between lobbying and advocacy to stay within legal boundaries. Missteps can lead to penalties or even jeopardize a nonprofit’s tax-exempt status.
Let’s break down the key differences between advocacy and lobbying, how nonprofits can engage in these activities legally, and why advocacy is so vital to advancing nonprofit missions.
Advocacy vs. Lobbying: What's the Difference?
Advocacy is a broad term that encompasses any effort to promote or support a cause, raise awareness of an issue, or educate the public and policymakers. Lobbying, on the other hand, refers to more specific activities aimed at influencing legislation or government decisions.
Advocacy can include:
Educating the public about important social issues.
Engaging communities around a cause.
Meeting with lawmakers to share information about your nonprofit’s work or the issues you address.
Encouraging voters to register or vote in elections (without endorsing specific candidates).
Lobbying involves:
Directly communicating with lawmakers to support or oppose specific legislation.
Encouraging the public to contact their elected representatives about a specific bill.
Taking a position on ballot measures or referendums that affect public policy.
Legal Limits for Lobbying
Nonprofits with a 501(c)(3) tax-exempt status are permitted to engage in lobbying, but with limitations. The IRS sets clear guidelines on how much lobbying nonprofits can do without risking their tax-exempt status.
Substantial Part Test: Nonprofits can lobby, but it cannot constitute a "substantial part" of the organization’s overall activities. Unfortunately, the IRS doesn’t provide a precise definition of “substantial,” which makes this rule a bit unclear. However, if your organization spends too much time or money on lobbying, you may face penalties or loss of tax-exempt status.
501(h) Election: To provide more clarity, many nonprofits choose to file a 501(h) election, which allows them to spend a specific percentage of their budget on lobbying without risking their tax-exempt status. This option sets clear financial limits based on your nonprofit's size and provides more protection than the vague "substantial part test."
Direct vs. Grassroots Lobbying: Direct lobbying involves communicating directly with lawmakers about specific legislation. Grassroots lobbying, on the other hand, encourages the public to contact their legislators about a particular issue. Both are legal within limits, but grassroots lobbying has stricter limits under the 501(h) election.
What Nonprofits Cannot Do: Political Campaigning
While lobbying is allowed in moderation, partisan political activity is strictly prohibited for 501(c)(3) organizations. Nonprofits cannot:
Endorse or oppose political candidates.
Donate to political campaigns.
Make public statements in favor of or against candidates.
Participate in political campaigns in any way.
Violating these rules could result in the loss of tax-exempt status, fines, or other legal penalties.
Why Legal Advocacy Is Important for Nonprofits
While the rules on lobbying are strict, advocacy is a critical tool for nonprofits to advance their missions. Engaging in advocacy allows nonprofits to:
Shape public policy: By educating lawmakers and the public on key issues, nonprofits can influence decisions that affect their cause, from social services to environmental protections.
Amplify their impact: Advocacy efforts can help nonprofits broaden their reach and create lasting systemic change, beyond direct services.
Mobilize communities: Encouraging people to take action—whether through grassroots campaigns or educational initiatives—empowers communities to support causes they care about.
Raise awareness: Advocacy spreads awareness of pressing social issues, making it more likely that policymakers and the public will take notice.
Many nonprofits worry about stepping into legal gray areas when engaging in advocacy or lobbying, but it's essential to remember that staying compliant is manageable with the right guidance. Nonprofits are encouraged to advocate, and doing so legally ensures they remain a strong force for good while maintaining their tax-exempt status.
How to Stay Compliant with the Law
To engage in advocacy and lobbying legally, nonprofits should follow these key tips:
Track Lobbying Activities: If your nonprofit plans to engage in lobbying, it's essential to keep track of the time and resources dedicated to these efforts. This helps ensure that lobbying doesn't become a "substantial part" of your activities.
File the 501(h) Election: If your nonprofit anticipates significant lobbying efforts, filing the 501(h) election gives you a clear financial framework and reduces the risk of violating IRS rules.
Avoid Partisan Politics: Be careful to stay out of political campaigning or endorsing candidates. You can encourage civic engagement, like voter registration, but your nonprofit cannot take sides in elections.
Seek Legal Guidance: When in doubt, consult a legal expert or advisor specializing in nonprofit law. They can help you navigate the complexities of IRS rules and ensure that your advocacy and lobbying efforts stay compliant.
Conclusion
Engaging in advocacy and lobbying is an important and effective way for nonprofits to create real change. However, nonprofits need to stay within legal boundaries, avoiding excessive lobbying or partisan political activity. By following these guidelines, your nonprofit can continue to champion the causes you care about while staying compliant with IRS rules and preserving your tax-exempt status.
At Instant Nonprofit, we handle the complex process of nonprofit formation so you can focus on what really matters: advocating for the causes and communities you're passionate about. Whether you're championing social justice, environmental protection, or community development, we simplify the legal side so you can get started making an impact right away. Let us take care of the paperwork, so you can dedicate your energy to driving change and amplifying the voices of those who need it most.